Q1 2021 Options Review

Data Insights

DMMs Return to the Floor (and to Auctions)

April 27, 2021

The NYSE Trading Floor, like all workplaces, has been affected by the ongoing COVID-19 pandemic. After closing in March 2020, the Trading Floor partially re-opened to Floor Brokers in May 2020 and to Designated Market Makers (DMMs) in mid-June 2020; subsequent NYSE Research analysis highlighted the Floor’s re-opening and associated market quality benefits. In light of public health conditions, Floor capacity was restricted between December 28, 2020 and January 22, 2021, with DMMs operating remotely during this time.

DMMs’ presence on the Floor allows them to manually conduct auctions, adding human judgement to especially complex or challenging price discovery events. DMMs’ return to the Trading Floor on January 25th coincided with an increase in market volume and volatility, resulting in an increase in Limit Up/Limit Down (LULD) halts.

NYSE-Listed Consolidated Volume

Source: NYSE TAQ

LULD halts trigger a 5-minute trading pause, followed by a re-opening auction. LULD events are, by definition, associated with increased market volatility, and the re-opening auction can help establish a reference point as trading resumes. NYSE re-opening auctions after the DMMs returned to the Trading Floor are closer to subsequent market trading, showing the benefit of increased oversight and judgment.

LULD Re-opening Auction Average Dislocation

(% of Daily Trading Range)

Source: NYSE TAQ

“Auction Dislocation” is defined as the difference between the re-opening auction price and the volume-weighted average price (VWAP) observed in the market over the subsequent two minutes. Here we display this measure as a percentage of each stock’s Daily Trading Range, averaged across all NYSE-listed corporate stocks.

Recent Articles

Multi-list options broke nearly all volume records in 2021, driven by the growth of retail participation: daily records (24 of the top 25 volume days of all-time came in 2021), monthly ADV records (April was the only month from 2021 not in the top 12 all-time), and yearly ADV records (37.3M ADV in 2021 was nearly 10M more than in 2020 and double the ADV in 2019).

Increased retail activity in the equities market has affected which stocks are trading the most, and when and where those stocks trade. We’ve previously highlighted retail’s impact on pre- and post-market volume and the opening auction, and now focus on the period immediately after the opening auction. Market participants often avoid this time of day due to higher volatility, an approach worth re-evaluating given current trends.

As the home of ETFs, the NYSE continuously works to strengthen market quality and provide the optimal trading environment for listing and trading ETFs. In April 2021, in service of this goal, the NYSE introduced new requirements and incentives for its industry-leading NYSE ETF Liquidity Program, including the assignment of additional market makers ("Less Active ETF Leads") for new and/or low-volume ETFs.